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Initial Coin Offerings have quickly grown as a method of securing startup funding for blockchain-based companies than venture capital. According to PwC, 537 ICOs with a total volume of more than $13.7 billion have been registered since the beginning of 2018. This is nearly twice the volume of ICOs registered in 2017; 552 ICOs with a total of just over $7.0 billion. Furthermore, the average size of an ICO has almost doubled from $12.8 million to over $25.5 million since 2017.
Even though it may seem that ICOs appeared out of nowhere, the history of ICOs dates back to 2008. A white paper named as bitcoin whitepaper was published by an anonymous person named Satoshi Nakamoto. This white paper caused a disruption which has revolutionised the global payments industry. Other potential applications for the underlying technology of Bitcoin – known as Blockchain was not explored till 2012 when J.R. Willet published the Mastercoin white paper which states that the Bitcoin protocol “can be used as a protocol layer, on top of which new currency layers with new rules can be built without changing the foundation”. This idea put forward by Mastercoin expanded the potential of the Blockchain technology for other applications such as distributed exchanges, supply chain monitoring applications, and more. The Mastercoin project started off with a month-long fundraiser in which anyone could buy Mastercoins with Bitcoins. Over 5120 BTC with a net worth around $500,000 was raised by Mastercoin and this is considered to be the first ever Initial Coin Offering and it was successful beyond expectations
A year later, in 2013, Vitalik Buterin published a white paper describing what would ultimately become Ethereum, a platform that went beyond the financial use cases allowed by Bitcoin. Ethereum put forward an open-source public service that uses blockchain technology to facilitate smart contracts and secure cryptocurrency trading without a third party. Ethereum made it possible for anyone to write smart contracts and decentralized applications where they could create their own rules for ownership, transaction formats and state transition functions. This has enabled the development of various decentralised applications which can serve not just the payments industry, but other industries as well. In 2014, Buterin and the other co-founders of Ethereum launched a crowdsourcing campaign where they sold Ethereum tokens called Ether to the amount of more than $18 million to get their vision off the ground.
Blockchain technology is something that can be leveraged to transform industries as varied as banking, farming, logistics, healthcare and manufacturing, to name a few. Since the launch of Ethereum, a number of ICOs have been launched for projects of decentralised applications for different industries. Some of these ICOs astonished everyone with its performance. The ICO for a new web browser called Brave, for instance, generated about $35 million in under 30 seconds and is the highest-grossing ICO as of January 2018, beating Filecoin that was able to raise $200 million within the first hour of its token sale.
The liberation that ICOs afforded to entrepreneurs gradually drove them away from traditional VC fund raising mechanisms because that process is lengthy and time consuming not to mention the biases against gender, geography, ethnicity and so on that founders would have to deal with. ICOs on the other hand, make raising funds an easy process. Funds are raised via token sales and the offerers reach out to the people who believe in what they do and convert them into evangelists and investors for their products. Since Mastercoin, thousands of ICOs have been launched, successfully raising nearly $30 billion to build decentralised applications.
You probably also know how this seemingly simple process can go wrong when the ICO founders easily take off with the raised funds. Investors have no option here other than to face the bitter side of investments that is losing all the money. With almost no legal regulations, the ICO founders enjoy the luxury of being a millionaire overnight. ICOs are attracting more and more fraudsters every day who hope to get rich with minimal effort by looting the hard earned money of investors. The increasing number of fraud ICOs are defaming the ICO market and people are beginning to lose faith in it.
When prospective investors started losing faith in ICOs, genuine ICO founders are affected adversely. They have a promising idea and the capability to execute the idea, but unfortunately, investors are now skeptical about making an investment. Investors reposition to evaluate a team based on the advisors they have on board. If a prominent influencer in the domain or a celebrity is backing the team, it’s almost a success. If that’s not the case, softcap would remain a dream for the ICO founders no matter how big their idea or how capable their team is.
The above mentioned problems faced in the ICO domain can be solved by empowering self-policing ICO communities to retain control over the fund allocation and an active involvement in the KPI & Milestones review of the company. This whitepaper introduces a methodology of KPIs based fundraising which lets investors decide when funds will be released to the offerers/promoters.
The above mentioned problems faced in the ICO domain can be solved by empowering self-policing ICO communities to retain control over the fund allocation and an active involvement in the KPI & Milestones review of the company. This whitepaper introduces a methodology of KPIs based fundraising which lets investors decide when funds will be released to the offerers/promoters.
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Here’s a high-level explanation of how milestone contracts work – An ICO founder, say Mr. Sam have a brilliant idea and want to tokenize a part of the project so that he can raise funds to build up the project. But he realizes that’s going to be difficult as investors are not willing to make an investment because they don’t trust ICOs anymore. Then, Sam decided to host his ICO with Coinfactory. He defined his project and easy as a pie, he created milestones for his project in the Coinfactory dashboard. Every milestone he created was converted into a smartcontract. If Sam’s ICO raised any funds, it will be split across the different milestone contracts and the raised funds will be held in the contract until there is a consensus between Sam and the investor community champions about the completion of the milestone. Once the champions from investor community approve the completion of a milestone, the funds as defined by the contract for the next milestone will be transferred to Sam’s wallet.
Milestone contract establishes a security for the investors that their funds will not be stolen. The ICO owner actually has to execute the milestones of the project idea to receive funds to execute the next milestone. Investors are happy because they are assured of the security. ICO owners are happy because they get enough funds to execute the different milestones in a timely manner All they have to do is to define the milestones and fund releases and that would attract the investors’ attention.
Milestone contract would add a new dimension to the ICO market. ICOs can be made trustable again, creating a win-win situation for both the ICO founders and investors. Above all, this would be a knock in the face of fraudsters. ICOs open gates to a bright future with more decentralized ecosystems, and it’s our responsibility to protect the revolution. I hope ICOs would once again rise up to help bring amazing project ideas to fruition, give investors confidence about their investments and slowly change the world.
